Nicola Willis v Ruth Richardson and the battle to get back to black – Thomas Coughlan
In January, MPs and political grandees converged on the Royal New Zealand Yacht Squadron in the shadow of the Harbour Bridge to commemorate the life of Nikki Kaye.
Kaye’s broad appeal was such that Dame Jenny Shipley, Michelle Boag, Marama Davidson, Chlöe Swarbrick and Chris Hipkins – people for whom affection for Kaye is the only thing they have in common – all showed up.
The biggest political gulf in the room wasn’t between left and right, but between two politicians often lazily lumped together by commentators who mistake symmetry for analysis.
Finance Minister Nicola Willis found herself cornered by Ruth Richardson, her distant predecessor.
Both are National Finance Ministers, both inherited deficits, both vowed to close them and both, of course, are women – that last attribute being the germ (in both senses) of said lazy analysis.
On this day, however, Richardson desired Willis embrace part of her legacy.
Fearful Willis’ fiscal consolidation – jargon for getting back to surplus and reducing debt to improve the books – was going too slowly, Richardson urged Willis to go harder.
Naturally, discussion turned to the idea of cutting benefit levels, the key lever Richardson used in the 1990s to turn the fiscal corner.
The conversation was unpersuasive.
Willis has changed the way benefit increases are calculated. But she’s not about to cut main benefit levels, which remain higher in relative terms than under the Clark Government – and if she were to do it, she probably wouldn’t get the ball rolling at her friend’s memorial service.
Unsurprisingly, Richardson was unmoved. She remains one of Willis’ fiercest critics for failing, in her view, to hack the deficit into submission.
The Taxpayers’ Union, which she chairs, is gearing up to publicly flog Willis yet again again for alleged profligacy.
This campaign, and Richardson’s views, are largely seen as a proxy for the Act Party’s perspective on how the next Budget should be written.
It’s not true Richardson has been entirely rejected by this Government.
A week after this year’s Budget, she received a King’s Birthday Honour, although National (perhaps Willis herself) apparently blocked Act’s bid for a full Damehood, leaving her with a more modest CNZM.
HYE-EWW
Willis is in the midst of preparing Budget 2026, her final of the term – and if she’s unlucky, her last.
While she’s spurned Richardson’s hard approach to consolidation, she hasn’t yet had proof of concept for her own.
Treasury’s half-year economic and fiscal update (Hyefu) forecasts are in and due for public release on December 16.
The unexpectedly steep 0.9% Q2 GDP fall and monthly Crown accounts numbers are coming in lower than forecast in May strongly suggest the Hyefu will be the latest in a long line of downward revisions to Treasury forecasts.
All this despite the Government’s heavy rhetoric on spending restraint and growth – both promises National and Act campaigned heavily on in 2023.
Neither has borne fruit in time for the Hyefu. With only two forecasts left before the election, the coalition is running out of runway to prove its softer path isn’t simply dithering in disguise.
And that puts Willis in a political vice.
Far from mimicking Richardson, at a surface level, Willis is more moderate than Sir Bill English.
She’s run no zero Budgets and accepted Labour’s expensive health-spending trajectory. The headline numbers suggest she’s the most moderate National Finance Minister in decades.
So why doesn’t it feel that way?
Because while the headline indicators suggest Willis resembles English, if you dig deeper and look at the spending sloshing from one part of the state to another, you see that in some parts of the state, she’s wielded the budgetary bone saw.
English ran tighter Budgets, but this Government has arguably cut more – $43 billion over the forecast period.
You can feel it, especially if you’re in sectors like science or the core public service, where the cuts have come hardest.
You don’t see this in the main fiscal statistics: the deficit and debt levels. Why?
Because these headline numbers measure not just what’s been cut, but what’s been spent as well – and for all the big cuts the coalition has made, it’s also made significant spending commitments.
Thus the books still resemble Labour’s – arguably worse – because much of the trimming hasn’t been banked as savings but redeployed to reshape the state in the coalition’s image.
Treasury Secretary Iain Rennie (himself a former Treasury secondee to Richardson and later Jim Bolger – in fact, Richardson had earlier been talking to Willis about what a good hire he was) put it bluntly at a select committee this week.
“We haven’t fiscally consolidated,” Rennie said. He described the last two Budgets as a “reprioritisation” from the “previous set of priorities to the priorities of the coalition”.
“Some of the fiscal change hasn’t been reducing the overall impact on the economy – it’s been shifting resources from one part of the public sector to another part of the public sector.”
Willis’ consolidation is largely deferred – slowing spending growth and allowing the naughty stealth tax of bracket creep to do the heavy lifting towards the end of the decade.
Rennie cautiously endorsed this, but offered a warning to stick to the plan. He said New Zealand’s credit rating is better than our fundamentals deserve.
“If you look at the commentary from the ratings agencies, essentially they are holding our rating essentially above the level of fundamentals,” he said.
He then explained why: “Because they trust our fiscal institutions to consolidate over the next few years”.
He hinted that this far slower consolidation may be politically wiser and therefore more durable – Richardson’s speed, after all, triggered a generational recoil.
On the other hand, Rennie noted, if there is a shock in the next few years, then the country piles one fiscal crisis on top of another, bequeathing a wrecked public finance system to a next generation that will probably need strong fiscal buffers to weather climate change and global instability, to say nothing of the Alpine Fault rupture.
This is very much the Richardson view. If you don’t have the courage to mete out pain now, you won’t be able to do it in term two.
Act wants to go much harder – and the only way to go harder is to start cutting into core entitlements.
Do universities need to offer so many courses? What if subsidies for “non-essential” ones were cut?
Willis is squeezed. The left thinks she’s going as hard as Richardson ever did, while the right (including Richardson herself) think she’s not going nearly hard enough.
Richardson has her allies. In July she was invited by National backbenchers to brief them on how to achieve a fiscal consolidation.
It’s unclear whether her argument was persuasive.
An unplanned effort, made later the same day, to persuade Winston Peters to record an interview for the Spinoff’s Juggernaut 2 podcast was sadly unsuccessful.
RMA reform to the rescue
Amid the fiscal squabbling, one area unites National and Act: Resource Management Act (RMA) reform.
The final part of the reforms will be announced on Tuesday and may well be Christopher Luxon’s Government’s biggest legislative legacy.
RMA Reform Minister Chris Bishop has hired Infometrics to conjure the big growth number the Government desperately needs.
The reforms will replace 100+ plans with 17 regional plans (similar to Labour’s RMA reforms), putting further pressure on councils to amalgamate. Territorial authorities will have chapters in these plans.
It will cut the number of planning zones which vary across the country from more than 1000 to something in the 10s.
The reforms narrow the scope of the RMA from most “effects” to mainly “externalities” (who is harmed by this activity and how much).
This approach could slash activities requiring a consent by 40 to 50%, the Government reckons.
The productivity effects are massive; the environmental impacts, well, we’ll hear about those on Tuesday.
In the background, let’s not forget, is Bishop’s mega-transport-environment-cities-planning ministry merger, which would oversee these reforms.
Maybe, just maybe, it’ll ignite some economic growth.
Find me a number
But again, these are reforms whose dividends lie in the future (they’re going to be rolled out over three years); the Government needs proof of competence now.
Willis hinted that it was working on such evidence this week, telling a select committee that Treasury was doing work on some figures to unpick the disappointing fiscal indicators into something that tell a story favourable to the Government.
Unfortunately, until now the only numbers that allow you to compare the coalition’s fiscal track to Labour’s is the pre-election economic and fiscal update (Prefu) forecasts, which include rosy productivity and economic forecasts, which together show an economy growing faster and the deficit turning into a surplus despite continued high spending levels.
Willis told the finance and expenditure committee this week that officials unpicked the fiscal indicators to disentangle the impact of the Government’s fiscally positive decisions, from the fiscally negative direction the economy as a whole has taken.
“ObegalX would be billions of dollars worse than currently forecast if we hadn’t made significant savings to achieve much tighter Budget allowances,” Willis said.
ObegalX is the operating balance before gains and losses (and excluding ACC).
An uncharitable reading of the work would allow voters to compare the coalition’s spending track against the hypothetical spending track of a third-term Labour Government, which all of a sudden looks much scarier than the numbers in the Prefu.
Plugged into the economic forecasts of today, that spending track would be likely to show deficits growing uncontrollably.
“When you add it up, it’s billions added to the deficit and debt,” Willis said.
It’s a clever political ploy, particularly as Labour tries to distance itself from its big spending second term.
“Put it this way,” Willis said when the Herald asked her about it outside select committee this week.
“We’ve got the receipts,” she said.